The Audit Committee Checklist: Questions to Ask and Items to Review

by Boris Feldman*

 

If you serve on the Audit Committee of the Board of Directors of a public company, you may feel beleaguered. Everyone is looking to you to stop the wave of corporate restatements. Each month, new requirements are being imposed on you: "do this;" "don't do that;" "sign here." The new rules combine to increase your personal exposure to unprecedented levels.

This article attempts to give you some help. It presents a checklist of questions to ask, and documents to review, in discharging your duties as a member of the Audit Committee. Your CFO may not like this checklist; she may feel that you are micro-managing the Finance Department. The short answer is that, in light of recent internal-controls failures, regulators and the capital markets demand greater Board oversight, even if it is somewhat intrusive. You may not like the checklist, because it will take more time than the cursory Audit Committee review that has been the norm at some companies. If that is your concern, you should consider exiting the Committee. In the new world, investors and regulators expect that Audit Committee membership will take substantial time. "Too busy" will no longer be accepted as an excuse.

The checklist is divided into two major sections: items for review internally; items for review with your outside auditors. Each, in turn, is divided into documents to review and questions to ask. You may find that the checklist provides a useful record of what the Audit Committee examined.

Internal Review

Documents to Review

 

Questions to Ask

 

Review with Outside Auditors

Documents to Review

 

Questions to Ask

 

*Copyright 2002. Boris Feldman is a member of Wilson Sonsini Goodrich & Rosati, in Palo Alto. This article reflects his views, not his firm's. You are welcome to copy and distribute this article, with express attribution to the author. Revised, August 8, 2002.